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The Adequacy of Speculation in Agricultural Futures Markets: Too Much of a Good Thing?

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  • Dwight R. Sanders
  • Scott H. Irwin
  • Robert P. Merrin

Abstract

This paper revisits the "adequacy of speculation" debate in agricultural futures markets using the positions held by index funds in the Commitment of Traders reports. Index fund positions were a relatively stable percentage of total open interest from 2006–2008. Traditional speculative measures do not show any material shifts over the sample period. Even after adjusting speculative indices for commodity index fund positions, values are within the historical ranges reported in prior research. One implication is that long-only index funds may be beneficial in markets traditionally dominated by short hedging.

Suggested Citation

  • Dwight R. Sanders & Scott H. Irwin & Robert P. Merrin, 2010. "The Adequacy of Speculation in Agricultural Futures Markets: Too Much of a Good Thing?," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 32(1), pages 77-94.
    • Handle: RePEc:oup:apecpp:v:32:y:2010:i:1:p:77-94.
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    References listed on IDEAS

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    1. Changyun Wang, 2003. "The behavior and performance of major types of futures traders," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 23(1), pages 1-31, January.
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    7. Gary Gorton & K. Geert Rouwenhorst, 2004. "Facts and Fantasies about Commodity Futures," NBER Working Papers 10595, National Bureau of Economic Research, Inc.
    8. Sanders, Dwight R. & Irwin, Scott H. & Merrin, Robert P., 2007. "Smart Money? The Forecasting Ability of CFTC Large Traders," 2007 Conference, April 16-17, 2007, Chicago, Illinois 37556, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
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